Strategic Management Strategic Management and the Entrepreneur and the Entrepreneur

Chapter 3: Strategic Management

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Strategic Management
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Crucial to building a successful business. Involves developing a game plan to guide a company as it strives to accomplish its mission, goals, and objectives, and to keep it on its desired course.

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Is Strategic Planning Really That Important?
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Study of 500 small companies:
 One of the most significant factors in distinguishing growing companies from those in decline: use of a written business plan.

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Another study:
 Only 12% of small companies had a longrange plan in writing.

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Strategic Management and Competitive Edge
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Developing a strategic plan is crucial to creating a competitive advantage, the aggregation of factors that sets a company apart from its competitors and gives it a unique position in the market. Example: Stardust Technologies, Inc.

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Strategic Management Process
Step 1: Develop a vision and translate it into a mission statement. Step 2: Define core competencies and target market and identify desired market position. Step 3: Assess strengths and weaknesses. Step 4: Scan environment for opportunities and threats. Step 5: Identify key success factors.

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Strategic Management Process
(continued)

Step 6: Analyze competition. Step 7: Create goals and objectives. Step 8: Formulate strategies. Step 9: Translate plans into actions. Step 10: Establish accurate controls.

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Knowledge Management
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The practice of gathering, organizing, and disseminating the collective wisdom and experience of a company’s employees for the purpose of strengthening its competitive position. Knowledge management involves:
 Taking inventory of the special knowledge the people in the company possess.  Organizing that knowledge and disseminating it to those who need it.

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Step 1: Develop a Vision and Create a Mission Statement
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Vision – an expression of what an entrepreneur stands for and believes in. A clearly defined vision:
 Provides direction  Determines decisions  Motivates people

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Step 1: Develop a Vision and Create a Mission Statement
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The Mission Statement addresses question: “What business are we in?” The mission is a written expression of how the company will reflect the owner’s values, beliefs, and vision. The company’s mission depicts its character, identity, and scope of operation in enough detail to distinguish the company in the marketplace.
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Vision and Mission (Review – different view)
Vision: An overall picture of where the entire organization would like to be in the future

Mission: A statement of what the various organizational units do and what they hope to accomplish in alignment with the organizational vision

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Prime Inc. Mission and Values
Mission To prosper while providing excellent service to our customers Prime Values
Customers—Finding, servicing, and keeping customers guarantees our existence. Service—We will provide quality service that meets or exceeds our customers’ requirements. Value—We will price our service at rates that are a true value to our customers. Profit—To remain free and provide security for our company and associates, we must earn a profit.
© 2001 by Prentice Hall, Inc.

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The Bama Companies, Inc. Mission and Vision
Mission People helping people be successful. Vision To delight our customers with the Bama experience…again and again by setting the standard, and being the best in our products, our service, and our people.

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Aire-Master Mission and Values
Mission To provide invaluable services that enhance the customer’s image of quality. Values
Positive mental attitude Teamwork and communication Concern for others Going the extra mile Innovative thinking Training and education Honesty Reliability Excellence Constant improvement

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Important Components of Organizational Vision

Organizational Purpose

Summary of What Organization Does

Broad Goals

Core Values and Beliefs

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Components of Organizational Vision and Mission Statements

Concern for Employees Concern for Public Image

Philosophy

Markets

Customers

Technology

Self-concept

Products or Services

Concern for Survival, Profits, and Growth

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Step 2: Define Core Competencies and Market Position
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Company must define its set of core competencies that enable it to serve customers better than rivals. Core Competencies – a unique set of capabilities a company develops in key operational areas that allow it to vault past competitors.
 They are what a company does best.  Best to rely on a natural advantage (often linked to the company’s size).

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Step 2: Define Core Competencies and Market Position
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Market segmentation – carving up the mass market into smaller, more homogenous units and then attacking certain segments with a specific marketing strategy. Proper positioning – creating the desired image for the business in the customer’s mind.

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Step 3: Assess Company Strengths
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Strengths

and Weaknesses

 Positive internal factors that contribute to accomplishing the mission, goals, and objectives.
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Weaknesses
 Negative internal factors that inhibit the accomplishment of the mission, goals, and objectives.

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Step 4: Scan for Opportunities and Threats
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Opportunities
 Positive external factors the company can employ to accomplish its mission, goals, and objectives.

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Threats
 Negative external factors that inhibit the firm’s ability to accomplish its mission, goals, and objectives.

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Step 5: Identify Key Success Factors
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Key success factors: relationships between a controllable variable and a critical factor that influence a company’s ability to compete in the market. The keys to unlocking the secrets of competing successfully in a particular market segment.
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Chapter 3: Strategic Management

Step 6: Analyze Competitors
Analyzing key competitors allows an entrepreneur to:  avoid surprises from existing competitors’ new strategies and tactics.  identify potential new competitors and the threats they pose.  improve reaction time to competitors’ actions.  anticipate rivals’ next strategic moves.

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Step 6: Analyze Competitors
Techniques that do not require unethical behavior:
 Monitor industry and trade publications.  Talk to customers and suppliers.  Listen to employees, especially sales representatives and purchasing agents.  Attend trade shows and conferences.  Study competitors’ literature and “benchmark” their products and services.  Get competitors’ credit reports.  Check out the local library.  Use the World Wide Web to learn more about competitors.  Visit competing businesses to observe their operations.

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Step 7: Create Company Goals and Objectives
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Goals – broad, long-range attributes to be accomplished. Objectives – more detailed, specific targets of performance that are S.M.A.R.T.
 Specific  Measurable  Attainable  Realistic (yet challenging)  Timely

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Why Have Goals?
Goals: 1. Direct all organizational work toward a common and unified purpose 2. Act as targets for motivating people 3. Serve as criteria against which work accomplishments are measured

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Types of Goals
Areas of Organizational Work Ë Technology and operations Ë Marketing Ë Financial

Ë

Ë

Breadth Organizationwide Operational

Ë Ë

Specificity Specific Directional

Ë Ë

Time Frame Long term Short term

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Characteristics of Good Goals
t Written in terms of outcomes rather than actions t Measurable and quantifiable t Clear as to a time frame t Challenging yet attainable t Written down t Communicated to all organizational members

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The Goal-Setting Process
Steps:
1. Review the organizational vision and mission(s) 2. Evaluate available resources 3. Determine broad, long-term, organization-wide goals 4. Write down the organization-wide goals 5. Determine specific, short-term operational goals 6. Write down the operational goals 7. Review results
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Relationship Between Organizational Goals and Strategies
Organizational Vision and Mission(s) Organization-wide Goals Operational Goals Operational Strategies
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Step 8: Formulate Strategies
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Strategy – a “road map” to guide the company through a turbulent environment as it seeks to fulfill its mission, goals, and objectives. It is the company’s game plan for winning. Three basic strategies: Cost leadership Cost leadership Strategy? Differentiation Differentiation Focus Focus

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Strategic Options
Competitive Advantage
Uniqueness Perceived by the Customer Industry Low Cost Position

Differentiation Differentiation

Low Cost Low Cost

Target Market
Niche

Differentiation Differentiation Focus Focus

Cost Cost Focus Focus

Differentiation
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Company seeks to build customer loyalty by positioning its goods or services in a unique or different fashion. Idea is to be special at something customers value. Key: Build basis for differentiation on a distinctive competence, something that the small company is uniquely good at doing in comparison to its competitors.

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Focus
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Company selects one or more customer segments in a market, identifies customers’ special needs, wants, or interests, and then targets them with a product or service designed specifically for them. Strategy builds on differences among market segments. Rather than try to serve the total market, the company focuses on serving a niche (or several niches) within that market.

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Cost Leadership
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Goal: to be the low-cost producer in the industry (or market segment). Low-cost leaders have an advantage in reaching buyers who buy on the basis of price, and they have the power to set the industry’s price floor. Works well when:
 buyers are sensitive to price changes.  competing firms sell the same commodity products.  a company can benefit from economies of scale.

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Financial and Accounting Strategies for Entrepreneurial Ventures
Evaluating Financial Performance t What type of analysis? t How much analysis? t How often to analyze? Other Financial Management Decisions
t t t t t Capital budgeting Stock dividend policy Cash flow management Cash and securities management Receivable and inventory management

Forecasting, Planning, and Budgeting t What type of forecast? t How often to forecast?

Financing Mix t Short-term versus long-term funding sources t Permanent or temporary sources

t Term loans and leases
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Information Systems Strategies for Entrepreneurial Ventures
Systems Technology
t Manual t Computer based

Types of Information System
t t t t t t Transaction processing system Office automation system Knowledge work system Management information system Decision support system Executive support system

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Step 9: Translate Strategies into Action Plans
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Create projects by defining:
 Purpose  Scope  Contribution  Resource requirements  Timing

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Step 10: Establish Accurate Controls
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The plan establishes the standards against which actual performance is measured. Entrepreneur must:  identify and track key performance indicators.  Take corrective action.

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Balanced Scorecards
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A set of measurements unique to a company that includes both financial and operational measures Gives managers a quick, yet comprehensive, picture of a company’s overall performance.

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Balanced Scorecards
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Four Perspectives:
 Customer: How do customers see us?  Internal Business: At what must we excel?  Innovation and Learning: Can we continue to improve and create value?  Financial: How do we look to shareholders?

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Dimensions of Organizational Culture

Stability

People Orientation

Aggressiveness

Innovation and Risk-Taking

Attention to Detail

Team Orientation

Outcome Orientation

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Organizational Culture
How Organizational Culture Is Learned:
Ë Stories Ë Rituals Ë Material

Symbols

Ë Language Ë Role

of Physical Surroundings
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Building a Healthy Culture
Guidelines:
1. Change has to start at the top. 2. Think about your culture when hiring. 3. Two-way communication is important. 4. If you don’t believe in it, don’t fake it.

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